Assessing the Fed's Next Move: Amid Uncertainty and Dissent
CHICAGO, September 8, 2010 – View a video featuring Diane Swonk discussing the September issue of Themes on the Economy®. Read this month's issue.
"I just returned from the 2010 Federal Reserve Bank of Kansas City Economic Symposium, August 26-29 in Jackson Hole, Wyoming. The theme was 'Macroeconomic Challenges: The Decade Ahead,' and the audience was heavily populated with central bankers from around the world, which seemed appropriate given the global dimensions of the crisis," says Diane Swonk, chief economist of Mesirow Financial, in her September issue of Themes on the Economy.
"Keynote addresses were delivered by Fed chairman, Ben Bernanke, and European Central Bank president Jean-Claude Trichet. The rest of the conference was spent discussing everything from what caused the crisis to where the economy is today and where we should go from here," notes Swonk.
In her September newsletter, Swonk highlights themes discussed at the Annual Jackson Hole Economic Policy Symposium, which include:
- The recovery will be slower than the Fed initially thought. The forecast (hope) is still for a reacceleration in growth into the end of 2010 and 2011. Even those gains are now weaker than most initially forecast, and will not be enough to bring the unemployment rate down by much.
- There was a sense among conference attendees that fiscal stimulus would be limited. Congress could extend and expand tax cuts, and maybe do a bit on the margin for the states, but its hands were already tied by ballooning budget deficits.
- Defense for the Federal Open Market Committee's (FOMC) August Decision. There is the continued use of the "extended period" language when it comes to exceptionally low interest rates that Bernanke argued has helped to reshape financial market expectations for monetary policy and, as a result, reduced a range of interest rates on both "short- and medium-term financial instruments to quite low levels."
- Bernanke also laid out the rationale for the FOMC's decision to maintain the size of the Fed's balance sheet via treasury-bond purchases. There was a sense of urgency, as the Fed was watching its balance sheet contract faster than it had initially estimated.
- Bernanke weighed four options that the Fed and outside economists have explored for providing additional monetary stimulus.
"The Great Depression and the experience in Japan, in particular, suggest that we are in for at least another seven years of subpar economic growth. That said, every crisis has its own unique characteristics and as much as we would like to draw inferences from the past, vice chairman of the Fed Don Kohn summed it up best when he said that there really is 'no precedent' for where we are today," said Swonk. "Indeed, I came away with more questions than answers about what we really 'know' about the crisis, where we are and how to fix it."
The September issue of Themes on the Economy® as well as archived issues can be found at mesirowfinancial.com.
The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2010, Mesirow Financial Holdings, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy an interest in any Mesirow Financial investment vehicle(s).
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